Exam 8: Revenue Recognition

The completed-contract method recognizes gross profit over the life of the contract.

Kramer Iron Works Kramer Iron Works signs a contract to provide three different products to a customer for a total transaction price of $325,000. Each product represents a separate performance obligation. Kramer only sells two of the three products on an individual basis so they must estimate the standalone selling price for the third product. The information about these three products is provided in the following table. Market Standalone Competition Forecasted Product Selling Price Price Cost A-1 \ 87,500 \ 66,500 \ 60,000 A-2 150,000 156,000 125,000 A-3 Not Available Total \ 322,500 \ 250,00 -Refer to Kramer Iron Works. Allocate the transaction price using expected-cost-plus-a-margin approach.

Recognition of revenue as each performance obligation is satisfied is which step in the recognition process?

Which one of the following is not an indicator of a consignment arrangement?

Motorcycle Madness sells an annual membership to its club for $300. On July 1, 2017 Motorcycle Madness sells 1,000 of these. The memberships begin immediately. The club prepares financial statements annually on December 31 . Required: Prepare the journal entries that Motorcycle Madness would record on July 1, 2017, December 31, 2017, and on June 30, 2018.

The residual approach of determining a standalone price for a good or service focuses on internal factors by forecasting costs and adding an appropriate profit margin.

Pemco Enterprises sells annual memberships to its shooting lodge. The memberships cost $310 each. On January 1, Pemco sold 2,800 memberships and received cash. What journal entry should Pemco Enterprises make on January 31st if adjusting entries are completed monthly.

Agee Corporation Agee enters into a contract with Pipkin Video to add their programs to Agee's network. Pipkin will pay Agee an upfront fee of $250,000 for 12 months of access, and will also pay a $100,000 bonus if Agee's users access Pipkin Video for at least 10,000 hours during the 12-month period. Agee estimates that it has a 55% chance of earning the $100,000 bonus. -Refer to Agee Corporation. Using the expected-value approach, determine the transaction price.

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,100,000. In the first year of the contract Tullis incurs $2,900,000 of cost and the engineers determined that the remaining costs to complete the project are $5,100,000. Tullis billed $3,600,000 in year 1 and collected $3,500,000 by the end of the year. How much gross profit should Tullis recognize in Year 1 assuming the use of the percentage-of-completion method? (Round any intermediary percentages to the nearest hundredth percent, and round your final answer to the nearest dollar.)

Jones Corporation enters into a contract with Warner Video to add their programs to Jones' network. Warner will pay Jones an upfront fixed fee of $250,000 for 12 months of access, and will also pay a $110,000 bonus if Jones' users access Warner Video for at least 10,000 hours during the 12 month period. Jones estimates that it has a 60% chance of earning the $110,000 bonus. Refer to Jones Corporation. Upon collection of the upfront fee, Jones would recognize a(n) ________.

What are the requirements for a good or service to be distinct?

IFRS defines the probable collection from a credit sale as ________.

If noncash consideration such as stock of a publicly-traded company is given in a revenue contract, then the value to be used for the transaction price should be ________.

Craft Construction Craft Construction entered into a contract to construct a generator station for a utility customer. The project was started in 2019 and completed in 2020. Cost and other information is presented below. Costs incurred during the year \ 225,000 \ 550,000 Estimated costs to complete 450,000 -0- Billings during the year 200,000 700,000 Cash collections during the year 150,000 750,000 -Craft Construction entered into a contract to construct a generator station for a utility customer. The project was started in 2019 and completed in 2020. Cost and other information is presented below. 2019 2020 Costs incurred during the year $225,000 $550,000 Estimated costs to complete 450,000 -0- Billings during the year 200,000 700,000 Cash collections during the year 150,000 750,000 Assume Craft uses the percentage-of-completion method for revenue recognition. Prepare all journal entries to record costs, billings, collections and profit recognition.

Able sells a piece of equipment to Smythe for $1,800 on August 1. The equipment cost $1,000. The equipment is picked up by Smythe on August 10. The contract also includes a 12 month service plan. How many performance obligations are included in this transaction?

An example of a good transferred over time is a ________.

The expected-value approach for revenue recognition is appropriate when variable consideration is included in the contract.

The timing of revenue recognition is dependent upon the control of the good being in the hands of ________.

Shady Equipment sells a truck to Fred for $180,000 on January 1, 2016. Payment of $180,000 is received two years later and interest is paid at the end of two years. The truck is delivered two years later. The market rate of interest is 7%. Refer to Shady Equipment. How much sales revenue will Shady report on January 1, 2016?

Pemco Enterprises sells annual memberships to its shooting lodge. The memberships cost $200 each. On January 1, Pemco sold 3000 memberships and received cash. Refer to Pemco Enterprises. How much revenue should Pemco recognize each month? (Round your final answer to the nearest whole number.)